Investment Quiz: 20 Questions Part 3

Sushi Company owns 30,000 ordinary shares of Sashimi Company acquired on July 31, 2009, at a total cost of P1,100,000. On December 1, 2009, Sushi received 30,000 stock rights from Sashimi. Each right entitles the holder to acquire one share at P45. The market price of Sashimi's share on this date, ex-right, was P50 and the market price of each right was P5. Sushi sold its rights the same date at P5 a right less a P10,000 commission. The gain from the sale of the rights should be reported by Sushi at:

On January 1, 2009, Fork Company purchased 50,000 ordinary shares of Ovaltine Company for P3,600,000. On December 31, 2009, Fork received 50,000 stock rights from Ovaltine. Each right entitles the holder to acquire on share for P85. The market price of Ovaltine's share was P100 immediately before the rights were issued, and P90 a share immediately after the rights were issued. Fork sold its rights on December 31, 2009 for P10 a right. Fork's gain from the sale of the rights is:

Eve Company owns 50,000 ordinary shares of Blend Company, which has several hundred thousand shares publicly traded. These 50,000 shares were purchased by Eve in 2007 for P100 per share. On August 30, 2009, Blend distributed 50,000 stock rights to Eve. Eve was entitled to buy one new share of Blend Company for P90 cash and two of these rights. On August 30, 2009, each share had a market value of P 132 ex-right, and each right had a market value of P18. What cost should be recorded for each new share that Eve acquired by exercising the rights?

On February 15, 2009, Bart Company purchased 20,000 shares of Homer Company's newly issued 6% cumulative P75 par preference share capital for P1,520,000. Each share carried one detachable share warrant entitling the holder to acquire at P10, one ordinary share of Homer Company. On February 15, 2009, the market price of the preference share ex-warrant was P72 and the market price of the share warrant was P8. On December 31, 2009, Bart sold all the share warrants for P205,000. The gain on the sale of the share warrants was:

Three Kings Company invested in shares of Eastern Company acquired as follows:                                                      NUMBER OF SHARES                       COST2007                                                        22,500                                 1,800,0002008                                                        37,500                                 3,300,000In 2009, Three Kings Company received 60,000 rights to purchase Eastern share at P80. Five rights are required to purchase one share. At issue date, rights has a market value of P4 each and share was selling ex-right at P96. Three Kings Company used rights to purchase 9,000 additional shares of Eastern Company and allowed the rights not exercised to lapse. In determining the stock rights exercised, assume the use of the first-in, first-out method. The amount to be debited to investment account for the purchase of the 9,000 additional shares is:

On January 1, 2009, Kent Company purchased 20% of Luther Company's ordinary shares outstanding for P6,000,000. During 2009, Luther reported net income of P7,000,000 and paid cash dividend of P4,000,000. The balance in Kent's investment in Luther Company account at December 31, 2009 should be:

On January, 1 2008, Wayne Company bought 15% of Parrot Company's ordinary shares outstanding for P6,000,000. Wayne appropriately accounts for this investment by the cost method. The following data concerning Parrot are available for the years ended December 31, 2008 and 2009:                                                                                  2008                           2009Net income                                                            3,000,000                    9,000,000Cash dividend paid                                                     None                   10,000,000In its income statement for the year ended December 31, 2009, how much should Wayne report as income from this investment?

On January 1, 2008, Tough Company acquired 10% of Complex Company's ordinary shares outstanding for P6,000,000. Tough appropriately accounts for this investment by the cost method. Complex Company reported the following for the years ended December 31, 2008 and 2007:                                                                 NET INCOME                    CASH DIVIDEND2008                                                                400,000                                           02009                                                             1,200,000                               1,800,000In its income statement for the year ended December 31, 2009, Easy Company should report dividend income at:

In January 2009, Fatty Company acquired 20% of the outstanding ordinary shares of David Company for P8,000,000. This investment gave Fatty the ability to exercise significant influence over David. The book value of the acquired shares was P6,000,000. The excess of cost over book value was attributed to a depreciable asset which was undervalued on David's balance sheet and which had a remaining useful life of ten years.For the year ended December 31, 2009, David reported net income of P1,800,000 and paid cash dividends of P400,000 and thereafter issued 5% stock dividend. What is the proper carrying value of Fatty's investment in David at December 31, 2009?

On January 1, 2009, Bell Company paid P18,000,000 for 50,000 ordinary shares of Base Company which represent a 25% interest in the net assets of Base. The acquisition cost is equal to the book value of the net assets acquired. Bell has the ability to exercise significant influence over Base. Bell received a dividend of P35 per share from Base in 2009. Base reported net income of P9,600,000 for the year ended December 31, 2009. In its December 31, 2009 balance sheet, Bell should report the investment in Base Company at:

On January 1, 2009, Weller Company purchased 10% of Pea Company's outstanding ordinary shares for P4,000,000. Weller is the largest single shareholder in Pea and Weller's officers are a majority of Pea's board of directors. Pea reported net income of P5,000,000 for 2009 and paid dividends of P1,500,000. In its December 31, 2009 balance sheet, what amount should Weller report as investment in Pea? 

On January 1, 2009, Dryer Company acquired as a long-term investment a 20% ordinary share interest in Epson Company. Dryer paid P7,000,000 for this investment when the fair value of Epson's net assets was P35,000,000. Dryer can exercise significant influence over Epson's operating and financial policies. For the year ended December 31, 2009, Epson reported net income of P4,000,000 and declared and paid cash dividends of P1,600,000. How much revenue from this investment should Dryer report for 2009?

On July 1, 2009, Dino Company purchased 30,000 shares of Mammoth Company's 100,000 outstanding ordinary shares for P200 per share. On December 15, 2009, Mammoth paid P400,000 in dividends to its ordinary shareholders. Mammoth's net income for the year ended December 31, 2009 was P1,200,000, earned evenly throughout the year. In its 2009 income statement, what amount of income from this investment should Dino report?

On April 1, 2009, Zen Company purchased 40% of the outstanding ordinary shares of Ying Company for P10,000,000. On that date, Ying's net assets were P20,000,000 and Zen cannot attribute the excess of the cost of its investment in Ying over its equity in Ying's net assets to any particular factor.Ying's 2009 net income is P5,000,000. Zen plans to retain its investment in Ying indefinitely. Zen accounts for its investment in Ying by the equity method. The maximum amount which could be included in Zen's 2009 income before tax to reflect Zen's  "equity in net income of Ying" is:

On January 1, 2009, Ron Company purchased 40% of the outstanding ordinary shares of Kim Company, paying P6,400,000 when the book value of the net assets of Kim Company equaled P12,500,000. The difference was attributed to equipment which had a book value of P3,000,000 and a fair market value of  P5,000,000 and to building which had a book value of P2,500,000 and a fair value of P4,000,000. The remaining useful life of the equipment and building was 4 years and 12 years, respectively. During 2009, Kim Company reported net income of P5,000,000 and paid dividends of P2,500,000. Ron Company shall report investment income for 2009 at:

On January 1, 2009, Ken Company purchased 30% interest in Barbie Company for P2,500,000. On this date Barbie's shareholders' equity was P5,000,000. The carrying amounts of Barbie's identifiable net assets approximated their fair values, except for land whose fair value exceeded its carrying amount by P2,000,000. Barbie reported net income of P1,000,000 for 2009 and paid no dividends. Ken accounts for this investment using the equity method. In its December 31, 2009 balance sheet, what amount should Ken report as investment in associate?

Seed Company bought 40% of Adam Company's outstanding ordinary shares on January 1, 2009, for P4,000,000. The carrying amount of Adam's net assets at the purchase date totaled P9,000,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts by P900,000 and P100,000, respectively. The plant has an 18-year life. All inventory was sold during 2009. During 2009, Adam reported net income of P1,200,000 and paid a P200,000 cash dividend. What amount should Seed report in its income statement from its investment in Adam for the year ended December 31, 2009?

On January 1, 2009, Annie Company purchased 20% of the outstanding ordinary shares of Duke Company for P4,000,000 of which P1,000,000 was paid in cash and P3,000,000 is payable with 12% annual interest on December 31, 2010. Annie also paid P500,000 to a business broker who helped find a suitable business and negotiated the purchase.At the time of acquisition, the fair value of Duke's identifiable assets and liabilities were equal to their carrying values except for an office building which had a fair value in excess of book value of P2,000,000 and an estimated life of 10 years. Duke's shareholders' equity on January 1, 2009 was P 13,000,0000.During 2009, Duke reported net income of P5,000,000 and paid dividend of P2,000,000. What amount of income should Annie Company report for 2009 as a result of the investment?